GBP/USD on the Descend as Brexit Uncertainty Weighs on Sterling

The GBP/USD currency pair is descending quickly following a series of events that seem to have thrown the Brexit negotiations into chaos. Several ministers serving under British Prime Minister Theresa May have already quit their posts. The situation was dampened when the Brexit minister Dominic Raab quit on Thursday, weeks after expressing optimism of a potential Brexit deal.

The pound has since plunged while uncertainty continues to dwell over the immediate future of the UK government. Labour Party leader Jeremy Corbyn has already asked for a general election should PM Theresa May fail to get her proposed Brexit deal through Parliament while the Environment Secretary, Michael Gove, turned down the chance to succeed Dominic Raab as Brexit secretary.

Things are looking dim going into the third week of November with Brussels in wait.

Technical Analysis

From a technical perspective the 4-hourly chart shows that the 3-month lows could be tested by close of business on Friday, and this provides the bears with an immediate target of about 1.2690 as denoted by (S1) on the 4-hourly chart below.

On the other hand, the bulls will be hoping that the current key support zone of about 1.2800 remains solid thus pushing the pair back up. If this happens then the bulls will be targeting trading opportunities at (R1) at around 1.3030 while (R2) at around 1.3180 is an intermediate level target for higher profits.

The main resistance zone at (R3) could be a target if the UK manages to strike a Brexit deal with the EU by the end of the month.

In the long-term, the bears could be aiming for new multi-year lows with 2016 and 2017 lows well within touching distance.

The daily chart below presents a clearer picture of how events could unfold over the next few months. The GBP/USD currency pair’s recent rebound was short-lived based on the daily chart below and the long-term bear run seems set to continue through early 2019.

The short-term rebound will likely pullback again below the previous high while the next rebound will be lower than the previous low, which sets the bears perfect to target profit opportunities at around (S1) at 1.2590, while (S2) at around the 1.2100 level is a target for the start of 2019.

On the other hand, should the GBP/USD currency pair defy the overwhelming odds of a bearish outlook and instead trigger a major trend reversal, the bulls could begin to target trading opportunities at (R1) at around 1.3215 intermediate while the long-term target at (R2) at around 1.3525 could see the pair hit a new multi month high.

The pair last traded above 1.3500 in April 2018.

Fundamental Analysis

From a fundamental perspective, the UK is still anticipating another rate hike by the end of the year regardless of the Brexit outcome. Brexit minister Dominic Raab’s resignation has, however, put things a few paces back regarding a potential deal with the EU. Currently, the immediate Challenge for Prime Minister Theresa May is to get the parliament to approve her proposed deal, which the UK will take to Brussels to try to convince the EU to agree some softer rules of engagement, post-Brexit.

Recent UK economic numbers did not impress, with manufacturing numbers dwindling as the Brexit uncertainty continued to affect the consumer market.

On the other hand, the US economy remains strong with unemployment rate holding steady at just 3.7%, the lowest level since 1969. Wage growth ticked to 3.1% in October while the economy added 250,000 new jobs beating analyst expectations of about 191,000-200,000.

Furthermore, just as the UK/EU Brexit deal appears to be reaching breaking point, the US is moving closer to nailing down a trade deal with its trade rival, China. The two economic giants have been engaged in what many have termed as trade wars since early this year and things appeared to worsen in September, which triggered a major plunge in US stocks. However, over the last month, things have softened and now the two countries appear closer to agreeing a trade deal that could push the greenback higher against its rival currencies.

Conclusion

In summary, the GBP/USD currency pair plunged this week, but showed some signs of recovery early on Friday. It remains to be seen how strong this rebound is, given Thursday’s events that saw UK’s Brexit negotiations plunge into calamity.

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